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Commodity price stabilization expected in 2017

Capacity will continue to be an issue for packers in beef and pork sectors.

Feb 03, 2017

After a volatile year, stability is returning to global commodity markets, at least for the time being, CattleFax chief executive officer Randy Blach said during the CattleFax Outlook Session at the 2017 Cattle Industry Convention and National Cattlemen's Beef Assn. (NCBA) Trade Show held last week.

“After the ag market shocks of the past year and an approximate correction of 50% in all commodity markets, prices are beginning to stabilize,” Blach said. “That doesn’t mean that we’re past this or that prices have bottomed, but on a global basis, we’re not likely to see as much volatility during the year ahead.”

He said the industry continues to become more current in its marketings, and cattle feeders are seeing a return to profitability -- the first step in helping to stabilize prices for cow/calf and stocker operations.

Blach said in the near term, capacity is going to continue to be a significant issue for packing companies in both the beef and pork sectors. A shortage of available labor and increases in protein production of beef, pork and poultry will continue to keep the packing sector in the driver’s seat during the year ahead.

“With limited processing capacity, the leverage shift in the marketplace will continue toward the packing, retail and foodservice segments for the time being,” Blach said.

During 2017 and beyond, margins are likely to tighten for cow/calf producers with more stability but also an expectation for both lower highs and lower lows. CattleFax analysts noted that the cow/calf sector will shift focus to finding efficiencies, reducing cow costs and improving productivity to remain profitable. Analysts estimate 2017 prices for 550 lb. steers to average $150/cwt., within a range of $130-170/cwt., while 750 lb. steers are expected to average $130/cwt., within a range of $120-140/cwt.

Blach reported that the historical cattle cycle remains intact, although the price break experienced in 2016 was the fastest and deepest of any in recent history.

“Even with the rapid growth in the U.S. cow herd, numbers are expected to continue higher for the next two to three years,” CattleFax senior analyst Kevin Good said. “Absolute price lows likely will not be realized until that period of increasing cow herd numbers is behind us.”

Good echoed the expectation for prices to stabilize during 2017, making price and production risk management an easier task for producers. He said fed steer prices will average $110/cwt., with the range being $98-$124/cwt., and the composite Choice cutout will trade from $168 to $204/cwt. with a 2017 average price of $185/cwt. for the year. Grain prices have also stabilized, and corn is projected to trade from $2.90 to $3.95/bu., averaging $3.45/bu.